Where to for VB and Qantas?
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Where to for VB and Qantas?
The current battle for hearts and mind shows the weakness of running any business as a commodity where the only differentiator is price. As the business guru Michael Porter says, “there can be only one low cost provider”. Commodity businesses such as sugar, cotton, minerals, telecommunications and steel are all exposed to economic variation.
Essentially this only leads an “all market” or “niche provider” as the only profitable business positioning strategies. The low cost provider typically makes a small margin on a large number of sales. As a senior manger at VB told me last year, “we make $10 a ticket; imagine if we could make $20?” Unfortunately for him with JetStar’s cost base the question is what if you had to discount $11?
Virgin are now “stuck in the middle”; no way to differentiate and no way to reduce their cost base. So far this hasn’t hurt Virgin, as often they have not had cheaper tickets than QF, but still retain the low cost position in the minds of the average consumer. Generally consumers are becoming smarter, so how long will this last?
By the way, this pricing policy is fair enough (dispite what PPRUNers argue) as the have high LFs (84%); why should they discount seats on a full aircraft. This year VB is adding capacity and J* will reduce thier passenger demand, so only now will get to see low cost tactics (for the first time in the Oz market) when demand is less than capacity and the revenue managers will have to create demand. And their world record operating profit margin of 16 percent will definately reduce.
The question now is where to for Virgin?
JetStar’s cost base of 7.8 cents per ASK is very low. I read two things into this: Qantas is providing a large number of in-house services and they will use the aircraft on longer routes (less labour input per kilometer). I fail to see how a low cost airline can justify 40-50 million USD on new aircraft when second hand are so cheap (A320: 14m USD; 767: 3m USD). It just points to Geoff Dixon’s biggest problem when producing a 600 m AUD profit: If I give it back to the shareholder (which is what he should do) he’ll never see it again so he has to spend it which will give marginally cheaper running costs. Still if I was a shareholder I would want to ask the question-where’s my money?
With Dixon selling tickets for an unsustainable $29 ($1 of revenue) and Richard offering to give them away, the ACCC should investigate what constitutes predatory pricing in the aviation market and in all businesses which sell perishable products and use revenue management. This type of behaviour is certainly a barrier to entry of new airlines and is therefore anti-competitive. The ACCC should clarify their position.
Geoff says that JetStar won’t cannibalise Qantas, so why doesn’t QF match VB? After all Qantas only 5% of its seats are business seats, and most of those are given away to staff and frequent fliers (as upgrades), the rest of his products are comodity ecconomy seats which are narrower than JetStar's and personaly the four dollar box is not a valued product differentiator. If VB sold 50,000 tickets last night and JetStar sold 30,000 this morning, how many did QF sell? I guess that’s why the downgrade from A330 to 767 which means less seats on City Flier.
Interestingly Qantas travel is now selling packages which fly JetStar to destinations to QF ports. The plot thickens...
So many questions?
Yawn
Essentially this only leads an “all market” or “niche provider” as the only profitable business positioning strategies. The low cost provider typically makes a small margin on a large number of sales. As a senior manger at VB told me last year, “we make $10 a ticket; imagine if we could make $20?” Unfortunately for him with JetStar’s cost base the question is what if you had to discount $11?
Virgin are now “stuck in the middle”; no way to differentiate and no way to reduce their cost base. So far this hasn’t hurt Virgin, as often they have not had cheaper tickets than QF, but still retain the low cost position in the minds of the average consumer. Generally consumers are becoming smarter, so how long will this last?
By the way, this pricing policy is fair enough (dispite what PPRUNers argue) as the have high LFs (84%); why should they discount seats on a full aircraft. This year VB is adding capacity and J* will reduce thier passenger demand, so only now will get to see low cost tactics (for the first time in the Oz market) when demand is less than capacity and the revenue managers will have to create demand. And their world record operating profit margin of 16 percent will definately reduce.
The question now is where to for Virgin?
JetStar’s cost base of 7.8 cents per ASK is very low. I read two things into this: Qantas is providing a large number of in-house services and they will use the aircraft on longer routes (less labour input per kilometer). I fail to see how a low cost airline can justify 40-50 million USD on new aircraft when second hand are so cheap (A320: 14m USD; 767: 3m USD). It just points to Geoff Dixon’s biggest problem when producing a 600 m AUD profit: If I give it back to the shareholder (which is what he should do) he’ll never see it again so he has to spend it which will give marginally cheaper running costs. Still if I was a shareholder I would want to ask the question-where’s my money?
With Dixon selling tickets for an unsustainable $29 ($1 of revenue) and Richard offering to give them away, the ACCC should investigate what constitutes predatory pricing in the aviation market and in all businesses which sell perishable products and use revenue management. This type of behaviour is certainly a barrier to entry of new airlines and is therefore anti-competitive. The ACCC should clarify their position.
Geoff says that JetStar won’t cannibalise Qantas, so why doesn’t QF match VB? After all Qantas only 5% of its seats are business seats, and most of those are given away to staff and frequent fliers (as upgrades), the rest of his products are comodity ecconomy seats which are narrower than JetStar's and personaly the four dollar box is not a valued product differentiator. If VB sold 50,000 tickets last night and JetStar sold 30,000 this morning, how many did QF sell? I guess that’s why the downgrade from A330 to 767 which means less seats on City Flier.
Interestingly Qantas travel is now selling packages which fly JetStar to destinations to QF ports. The plot thickens...
So many questions?
Yawn
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Looking at routes and cities i think Jetstar will have a big impact on VB,more than it will on qantas.Time will tell.
As for $29 tickets ,that is better than nothing.How many planes do you see chockers-----always a couple of seats vacant,and the advertising of cheap seats does wanders.And naturally most of these would be at times and days the records show are down on normal numbers.VB does midweek deals because less fly at those times.
Lets face it---cheap Jetstar-VB-QF only vary a few bucks.If there any left on the day you want to travel you have a good deal------------book WAY AHEAD
For curiosity i checked MELB to LAUNCESTON on June 1st
Jetstar--$69
QF--$72
VB--$105
Maybe next day is reversed--thats how it goes.
Son works for QF and reckons he can get me 50% of airfares--------thats 50% off full fare----i can do better than that on the nett.
I fly for convenience(short stop-overs on route when not direct) ,service(like my little meals etc) and i suppose the main reason my depature point is only serviced by one airline and im stuffed if im getting my bags off and going to next terminal to check in again all for a few $.
But the average punter arent too smart.They all think VB is $hite cheap and wouldnt even know the price of compeditors------but that was the advertising
As for $29 tickets ,that is better than nothing.How many planes do you see chockers-----always a couple of seats vacant,and the advertising of cheap seats does wanders.And naturally most of these would be at times and days the records show are down on normal numbers.VB does midweek deals because less fly at those times.
Lets face it---cheap Jetstar-VB-QF only vary a few bucks.If there any left on the day you want to travel you have a good deal------------book WAY AHEAD
For curiosity i checked MELB to LAUNCESTON on June 1st
Jetstar--$69
QF--$72
VB--$105
Maybe next day is reversed--thats how it goes.
Son works for QF and reckons he can get me 50% of airfares--------thats 50% off full fare----i can do better than that on the nett.
I fly for convenience(short stop-overs on route when not direct) ,service(like my little meals etc) and i suppose the main reason my depature point is only serviced by one airline and im stuffed if im getting my bags off and going to next terminal to check in again all for a few $.
But the average punter arent too smart.They all think VB is $hite cheap and wouldnt even know the price of compeditors------but that was the advertising
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Aussierotor, have to correct you on your fare search, this is what I found on the Virgin booking system,
Fair Fare Adult Web $69.00 AUD
Adult Phone $79.00 AUD
Fully Flexible Adult Web $199.00 AUD
Adult Phone $209.00 AUD
Tue, 01 Jun 04
Flight DJ 604
Operated by Virgin Blue 11:00 Depart Melbourne
12:00 Arrive Launceston
Fair Fare Adult Web $69.00 AUD
Adult Phone $79.00 AUD
Fully Flexible Adult Web $199.00 AUD
Adult Phone $209.00 AUD
Tue, 01 Jun 04
Flight DJ 610
found on the virgin web site
And this on the qantas web site!
Flights Out
Melbourne to Launceston - Tue 01 Jun 04 Morning - Lowest available > Change your search
Select Fare Type Price * Flight From To Duration Aircraft
Super Saver
$117
adult QF1023 Melbourne
11:35 Launceston
12:35 1h00mn
737-300 also fly from Melbourne to Launceston. Visit jetstar.com
Legend: = Qantas flight = Flight operated by another carrier
Fair Fare Adult Web $69.00 AUD
Adult Phone $79.00 AUD
Fully Flexible Adult Web $199.00 AUD
Adult Phone $209.00 AUD
Tue, 01 Jun 04
Flight DJ 604
Operated by Virgin Blue 11:00 Depart Melbourne
12:00 Arrive Launceston
Fair Fare Adult Web $69.00 AUD
Adult Phone $79.00 AUD
Fully Flexible Adult Web $199.00 AUD
Adult Phone $209.00 AUD
Tue, 01 Jun 04
Flight DJ 610
found on the virgin web site
And this on the qantas web site!
Flights Out
Melbourne to Launceston - Tue 01 Jun 04 Morning - Lowest available > Change your search
Select Fare Type Price * Flight From To Duration Aircraft
Super Saver
$117
adult QF1023 Melbourne
11:35 Launceston
12:35 1h00mn
737-300 also fly from Melbourne to Launceston. Visit jetstar.com
Legend: = Qantas flight = Flight operated by another carrier
Join Date: Oct 2002
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You are right Aladdin------maybe i got the dates stuffed up
Maybe it was May 1st--cant be as VB is $115
0r June 3rd----VB $105--QF $111
I see the cheapest available flight with QF now is $88 if you can find the right day
2 days ago it was $72.
It was my point to say how much they vary,and if your in early they are there.
Not completely true as i booked 5 flights one day and didnt get confirmation on 2 ,so i booked them again 2 days later.
Cairns --Syd had dropped by $60 and Syd--Adel had gone up $20
They cancelled my first ones and i was still $40 in front
Ive found good rates one day ,gone to work to book holidays then next day once holidays approved get back on ,only to find some legs have shot up in price,
So if your first in ,best dressed you will fing Jetstar a few bucks cheaper than Virg then a few $ to QF.
Im not complaining---got fares from Perth-Adel in June for $105---Adel to Syd for $66 with QF
Now ,3 weeks later Perth-Adel $166--Adel-Syd $118
So ,on any given day they all vary who is the cheapest ,but on a standard rate for a late booking for instance they only vary $6-10,and to me the hype of low cost ,cheap fares is hogwash
Maybe it was May 1st--cant be as VB is $115
0r June 3rd----VB $105--QF $111
I see the cheapest available flight with QF now is $88 if you can find the right day
2 days ago it was $72.
It was my point to say how much they vary,and if your in early they are there.
Not completely true as i booked 5 flights one day and didnt get confirmation on 2 ,so i booked them again 2 days later.
Cairns --Syd had dropped by $60 and Syd--Adel had gone up $20
They cancelled my first ones and i was still $40 in front
Ive found good rates one day ,gone to work to book holidays then next day once holidays approved get back on ,only to find some legs have shot up in price,
So if your first in ,best dressed you will fing Jetstar a few bucks cheaper than Virg then a few $ to QF.
Im not complaining---got fares from Perth-Adel in June for $105---Adel to Syd for $66 with QF
Now ,3 weeks later Perth-Adel $166--Adel-Syd $118
So ,on any given day they all vary who is the cheapest ,but on a standard rate for a late booking for instance they only vary $6-10,and to me the hype of low cost ,cheap fares is hogwash
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Sat, 01 May 04
Adult Web $105.00 AUD
Adult Phone $115.00 AUD
Fully Flexible Adult Web $199.00 AUD
Adult Phone $209.00 AUD
Sat, 01 May 04
Flight DJ 604
Operated by Virgin Blue 11:00 Depart Melbourne
12:00 Arrive Launceston
Fair Fare Adult Web $105.00 AUD
Adult Phone $115.00 AUD
Fully Flexible Adult Web $199.00 AUD
Adult Phone $209.00 AUD
Sat, 01 May 04
Flight DJ 610
Operated by Virgin Blue 19:50 Depart Melbourne
20:50 Arrive Launceston
and on qf
Super Saver
$117
adult QF1731 Melbourne
08:25 Launceston
09:25 1h00mn
717-200
Super Saver
$117
adult QF1735 Melbourne
11:40 Launceston
12:40 1h00mn
717-200
Red e-Deal
$111
adult QF1737 Melbourne
15:30 Launceston
16:30 1h00mn
717-200
Red e-Deal
$111
adult QF1739 Melbourne
16:55 Launceston
17:55 1h00mn
717-200
Red e-Deal
$111
adult QF1743 Melbourne
19:40 Launceston
20:40 1h00mn
717-200
Super Saver
$300
adult QF418 Melbourne
09:00 Sydney
10:20 4h05mn
767-200
QF1747 Sydney
11:30 Launceston
13:05 717-200
Super Saver
$300
adult QF416 Melbourne
08:30 Sydney
09:50 4h35mn
767-300
QF1747 Sydney
11:30 Launceston
13:05 717-200
Red e-Deal
$270
adult QF414 Melbourne
08:00 Sydney
09:20 5h05mn
767-200
QF1747 Sydney
11:30 Launceston
13:05 717-200
Legend: = Qantas flight = Flight operated by another carrier
Adult Web $105.00 AUD
Adult Phone $115.00 AUD
Fully Flexible Adult Web $199.00 AUD
Adult Phone $209.00 AUD
Sat, 01 May 04
Flight DJ 604
Operated by Virgin Blue 11:00 Depart Melbourne
12:00 Arrive Launceston
Fair Fare Adult Web $105.00 AUD
Adult Phone $115.00 AUD
Fully Flexible Adult Web $199.00 AUD
Adult Phone $209.00 AUD
Sat, 01 May 04
Flight DJ 610
Operated by Virgin Blue 19:50 Depart Melbourne
20:50 Arrive Launceston
and on qf
Super Saver
$117
adult QF1731 Melbourne
08:25 Launceston
09:25 1h00mn
717-200
Super Saver
$117
adult QF1735 Melbourne
11:40 Launceston
12:40 1h00mn
717-200
Red e-Deal
$111
adult QF1737 Melbourne
15:30 Launceston
16:30 1h00mn
717-200
Red e-Deal
$111
adult QF1739 Melbourne
16:55 Launceston
17:55 1h00mn
717-200
Red e-Deal
$111
adult QF1743 Melbourne
19:40 Launceston
20:40 1h00mn
717-200
Super Saver
$300
adult QF418 Melbourne
09:00 Sydney
10:20 4h05mn
767-200
QF1747 Sydney
11:30 Launceston
13:05 717-200
Super Saver
$300
adult QF416 Melbourne
08:30 Sydney
09:50 4h35mn
767-300
QF1747 Sydney
11:30 Launceston
13:05 717-200
Red e-Deal
$270
adult QF414 Melbourne
08:00 Sydney
09:20 5h05mn
767-200
QF1747 Sydney
11:30 Launceston
13:05 717-200
Legend: = Qantas flight = Flight operated by another carrier
